ELECTRONIC CITATION: 2006 FED App. 0003P (6th Cir.)
File Name: 06b0003p.06
BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT
In re: THOMAS FRANCIS BARRETT, JR., )
)
Debtor. )
_____________________________________ )
)
EDUCATIONAL CREDIT MANAGEMENT )
CORPORATION, )
)
Appellant, )
)
v. ) No. 05-8011
)
THOMAS FRANCIS BARRETT, JR., )
)
Appellee. )
_____________________________________ )
Appeal from the United States Bankruptcy Court
for the Northern District of Ohio, Eastern Division at Youngstown.
No. 01-45444; Adv. No. 02-4164.
Argued: February 1, 2006
Decided and Filed: March 2, 2006
Before: AUG, LATTA, and SCOTT, Bankruptcy Appellate Panel Judges.
____________________
COUNSEL
ARGUED: Frederick S. Coombs III, HARRINGTON, HOPPE & MITCHELL, Youngstown, Ohio,
for Appellant. Robert A. Ciotola, Canfield, Ohio, for Appellee. ON BRIEF: Frederick S. Coombs
III, HARRINGTON, HOPPE & MITCHELL, Youngstown, Ohio, for Appellant. Robert A. Ciotola,
Canfield, Ohio, for Appellee.
____________________
OPINION
____________________
JENNIE D. LATTA, Bankruptcy Appellate Panel Judge. Educational Credit Management
Corporation (“ECMC”) appeals an order of the bankruptcy court discharging the debtor’s student
loans as the result of undue hardship pursuant to 11 U.S.C. § 523(a)(8). For the reasons set forth
below, we AFFIRM the decision of the bankruptcy court.
I. ISSUES ON APPEAL
Whether the second prong of the Brunner test requires corroborating evidence in the form
of expert medical proof to establish that the circumstances that cause a debtor’s inability to repay
his loans will likely continue for a substantial portion of the repayment period. Whether the third
prong of the Brunner test requires participation in the Income Contingent Repayment Plan to
establish that a debtor has made good faith efforts to repay the loans.
II. JURISDICTION AND STANDARD OF REVIEW
The United States District Court for the Southern District of Ohio has authorized appeals to
the Bankruptcy Appellate Panel for the Sixth Circuit (“BAP”). A “final order” of a bankruptcy court
may be appealed by right under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if
it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.”
Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations
omitted); In re Copper, 314 B.R. 628, 629-30 (B.A.P. 6th Cir. 2004), aff’d, 426 F.3d 810 (6th Cir.
2005). A bankruptcy court order discharging student loans on the basis of undue hardship is a final
order. Dolph v. Pa. Higher Educ. Assistance Agency v. Dolph (In re Dolph), 215 B.R. 832, 834
(B.A.P. 6th Cir. 1998). The BAP has jurisdiction to decide this appeal.
Whether repayment of student loans will pose an undue hardship is a question of law that
is reviewed de novo. Cheesman v. Tenn. Student Assistance Corp. (In re Cheesman), 25 F.3d 356,
359 (6th Cir. 1994). De novo review means that the Panel determines questions of law
independently of the bankruptcy court. First Union Mortgage Corp. v. Eubanks (In re Eubanks),
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219 B.R. 468, 469 (B.A.P. 6th Cir. 1998). The bankruptcy court’s factual findings, however, are
reviewed for clear error. The factual findings of the bankruptcy court will not be set aside unless
the Panel has “the definite and firm conviction that a mistake has been committed.” Tenn. Student
Assistance Corp. v. Hornsby (In re Hornsby), 144 F.3d 433, 436 (6th Cir. 1988) (quoting Cheesman,
25 F.3d at 359). Due regard is to be given to the opportunity for the bankruptcy court to judge the
credibility of witnesses. Fed. R. Bankr. P. 8013.
III. FACTS
Thomas Barrett (“Debtor”) obtained student loans in the amount of $94,751 while acquiring
a masters degree in Health Administration and in Business Administration. Although the Debtor
had prior medical problems, he was able to graduate from the programs in 1999. After graduation,
he became ill, with unexplained fevers, night sweats, and weight loss. The illness continued and was
eventually diagnosed as Hodgkin’s lymphoma during the summer of 2000. According to a letter
from his physician, the Debtor was treated with chemotherapy called ABVD and is currently in
remission. The Debtor testified that the treatment caused adverse effects on his lungs and
circulatory system.
In October of 2002, the Debtor began experiencing pain in his shoulders and was diagnosed
with avascular necrosis, a condition that causes the patient’s bones to die from lack of blood supply.
The Debtor was prescribed 20 mg of Oxycontin, to be taken twice a day, for pain. In April of 2004,
he underwent surgery to replace the joint in his right shoulder. He also testified that he suffered
from pain in his shoulders, knees, and hips. In August of 2004, he again had surgery on his right
shoulder to repair the shoulder replacement cap. At the time of the trial, the Debtor’s medication
had been increased to 40 mg of Oxycontin three times per day as well as two other medications. The
Debtor testified that the pain in his left shoulder, hips, and knees has increased, and he expects that
further surgery will be required. The Debtor testified for some five hours before the bankruptcy
judge who therefore was uniquely able to observe his demeanor and judge his credibility.
The Debtor testified that the pain he experiences has prevented him from working full time,
and, because of anticipated surgeries, he does not expect to be able to work in the foreseeable future.
He had worked at some part-time positions, and at the time of trial, was self-employed doing
computer-related work using his left hand (while his right shoulder heals) to move a computer
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mouse. He testified that he had attempted to find other work, but that potential employers lost
interest when they learned of his health problems.
The Debtor’s student loans have been deferred on the basis of his health problems and
minimal income. As a result, no payment has come due on his student loans and the loans are not
in default. The Debtor testified that he had not participated in the Income Contingent Repayment
Program (“ICRP”) because of his fear of adverse tax consequences. The Debtor testified that he had
used an Interactive Repayment Calculator to determine possible outcomes under the ICRP. He
testified that, based upon a loan amount of $100,000, an interest rate of 4%, and annual income of
$15,000, at the end of 25 years he would have made only minimal payments on the loan. At that
time, he would owe $268,761, which would be written off and treated as taxable income to him.
The Debtor’s schedules and statement of financial affairs were admitted into evidence. The
Debtor listed no real property and minimal personal property consisting of household goods,
wearing apparel, a computer, cash and other financial accounts, all of which had an aggregate value
of $1,120. The Debtor listed no secured debts and no priority debts. He listed unsecured,
nonpriority debts of $302,342. The bankruptcy court found that approximately 60% ($183,781) of
these debts were described as medical bills. The Debtor scheduled two student loans in the total
amount of $94,751, approximately one-half of his scheduled medical debt.
The bankruptcy court found that the Debtor’s medical condition had deteriorated between
the filing of his bankruptcy petition and the trial on his adversary complaint. The Debtor had
incurred $20,000 in additional medical debt that he was unable to pay. He testified that he goes to
the Cleveland Clinic for doctor visits five times per month, incurring a $20 co-pay for each visit.
He also incurs travel and parking expenses for each visit. The Debtor testified that his cost for
prescription medications is $600 per month, and that his cost for health insurance is $1,000. The
Debtor receives some financial assistance from his parents who are in their mid-60s. He testified
that he could not be assured of their financial help into the future. The court found that the Debtor
had not been able to make payments on his debts for medical bills, and could not make payments
on his student loans.
ECMC presented no rebuttal proof. It merely relied upon its assertion that the Debtor failed
to carry his burden of proof with respect to the second prong of the Brunner test because he failed
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to corroborate his testimony with expert medical evidence, and failed to carry his burden of proof
with respect to the third prong of the Brunner test because he failed to enroll in the ICRP.
ANALYSIS
Prior to amendment effective October 17, 2005, with respect to the discharge of student
loans, the Bankruptcy Code provided:
A discharge under section 727, 1141, 1228(a), or 1328(b) of this title
does not discharge an individual debtor from any debt . . . for an
educational benefit overpayment or loan made, insured, or guaranteed
by a governmental unit, or made under any program funded in whole
or in part by a governmental unit or nonprofit institution, or for an
obligation to repay funds received as an educational benefit,
scholarship, or stipend, unless excepting such debt from discharge
under this paragraph will impose an undue hardship on the debtor and
the debtor’s dependents.
11 U.S.C. § 523(a)(8) (pre-BAPCPA)1. The Sixth Circuit has explicitly adopted the so-called
Brunner test for determining whether the repayment of a student loan would impose an undue
hardship on a debtor. Oyler v. Educ. Credit Mgmt. Corp. (In re Oyler), 397 F.3d 382 (6th Cir.
2005); see Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395 (2d Cir. 1987). As
summarized by the court, the Brunner test requires a three-part showing by the debtor:
(1) that the debtor cannot maintain, based on current income and
expenses a “minimal” standard of living for herself and her
dependents if forced to repay the loans; (2) that additional
circumstances exist indicating that this state of affairs is likely to
persist for a significant portion of the repayment period of the student
loans; and (3) that the debtor has made good faith efforts to repay the
loans.
Fields v. Sallie Mae Serv. Corp. (In re Fields), 326 B.R. 676, 681 (B.A.P. 6th Cir. 2005) (quoting
Miller v. Pa. Higher Educ. Assistance Agency (In re Miller), 377 F.3d 616, 623 (6th Cir. 2004)).
To obtain a discharge of student loans, a debtor must show by a preponderance of the evidence that
he has satisfied all three prongs of the Brunner test. In re Miller, 377 F.3d at 623.
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Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) which
became effective on October 17, 2005.
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The bankruptcy court found that the Debtor satisfied all three prongs of the Brunner test.
ECMC appeals only with respect to prongs two and three. That is, ECMC concedes that the Debtor
cannot maintain a minimal standard of living for himself (the Debtor has no dependents) if forced
to repay his student loans.
With respect to the second prong, ECMC maintains that the Debtor’s testimony without more
is inadequate to establish the existence of additional circumstances indicating that the current state
of affairs is likely to continue. ECMC focuses solely on the lack of expert medical proof, but such
additional circumstances,
may include illness, disability, a lack of useable job skills or the existence of a large
number of dependents. And, most importantly, they must be beyond the debtor’s
control, not borne of free choice.
Oyler, 397 F.2d at 386 (citation omitted). “Include” is a term generally understood to be not
limiting, meaning that what follows the term “include” in the Oyler court’s discussion of the second
prong of the Brunner test are examples of relevant additional circumstances. See 11 U.S.C. § 102(3)
(“‘includes’ and ‘including’ are not limiting”). It is to be expected that there will be other examples
of circumstances indicating a likelihood that a current state of affairs will persist for a substantial
portion of the repayment period for a student loan. There is no per se requirement of expert medical
proof implied in the second prong of the Brunner test. The bankruptcy court found that the Debtor
was not a medical expert but stated that the Debtor could “testify about how his diagnosis affects
his own health and his firsthand knowledge about that.” J.A., p.43.
In this case, the Debtor testified that he has been diagnosed with avascular necrosis, “a
condition caused when you have blood supply cut off from various outside medications such as
chemotherapy and it causes the blood supply to the bones to shut off and the bones then die.” J. A.,
p. 43. The Debtor’s definition is consistent with that issued by the National Institutes of Health:
Avascular necrosis is a disease resulting from the temporary or
permanent loss of the blood supply to the bones. Without blood, the
bone tissue dies and causes the bone to collapse. If the process
involves the bones near a joint, it often leads to collapse of the joint
surface. This disease also is known as osteonecrosis, aseptic
necrosis, and ischemic bone necrosis. . . .
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The amount of disability that results from avascular necrosis depends
on what part of the bone is affected, how large an area is involved,
and how effectively the bone rebuilds itself. The process of bone
rebuilding takes place after an injury as well as during normal
growth. Normally, bone continuously breaks down and rebuilds –
old bone is reabsorbed and replaced with new bone. The process
keeps the skeleton strong and helps it to maintain a balance of
minerals. In the course of avascular necrosis, however, the healing
process is usually ineffective and the bone tissues break down faster
than the body can repair them. If left untreated, the disease
progresses, the bone collapses, and the joint surface breaks down,
leading to pain and arthritis. . . .
Conservative treatments have been used experimentally alone or in
combination. However, these treatments rarely provide lasting
improvement. Therefore, most patients will eventually need surgery
to repair the joint permanently.
Nat’l. Inst. of Arthritis and Musculoskeletal and Skin Diseases, Questions and Answers About
Avascular Necrosis, (2001), http:// www.arthroscopy.com/avn.htm. See Barry Russell, Bankruptcy
Evidence Manual § 201.3 (2006 ed.) (“Under [Federal Rule of Evidence] 201(f), judicial notice may
be taken at any stage of the proceeding, including by an appellate court.”); Hertzel v. Educ. Credit
Mgmt. (In re Hertzel), 329 B. R. 221, 231-33 (B.A.P. 6th Cir. 2005).
The Debtor described the resulting pain he was experiencing, the inability of medication to
control his pain, the expectation that he will need surgery to replace each of his major joints, the
recovery period he experienced with respect to the first surgery to replace his right shoulder, and the
need to have these surgeries in sequence to avoid the necessity for round-the-clock nursing care.
The Debtor anticipated that he would be having surgery and recovering from surgery for the rest of
his life. The Debtor further testified about his attempts to work and to find work. He testified that
he has been unable to hold a full-time job since graduation from St. Louis University because of the
severity of his pain. He also testified that employers lose interest in hiring him when they learn of
his medical history. This state of affairs had continued from 1999, when the Debtor graduated from
St. Louis University, until the time of trial, November 23, 2004, some five years later. The Debtor
provided information about his income and expenses. The Debtor testified that he was able to work
for a short period of time one to two days per week. He estimated that he averages income of about
$2,000 per month from the jobs he is able to get. He itemized monthly expenses of $4,000 per
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month which are not expected to decrease. The Debtor’s testimony was corroborated by his income
tax return for 2003 which showed annual income from wages of $2,563, business income of $2,421,
and unemployment compensation of $8,034. All of this testimony came into the record without
objection or rebuttal testimony. The trial judge had adequate opportunity to observe the witness and
determine his physical condition and credibility. The trial judge found “that Plaintiff’s testimony
in this case is credible with respect to his current medical condition and there has been no inference
that Plaintiff in this case has not been diagnosed with avascular necrosis nor that he is not in constant
pain.” J. A., p. 164. There is no suggestion of error with respect to the court’s factual findings.
The second prong of the Brunner test requires proof of additional circumstances indicating
that the current state of affairs is likely to persist for a significant portion of the repayment period
of the student loans. A debtor “must precisely identify [his] problems and explain how [his]
condition would impair [his] ability to work in the future.” Tirch v. Pa. Higher Educ. Assistance
Agency (In re Tirch), 409 F.3d 677, 681 (6th Cir. 2005). The Debtor’s proof indicates a state of
affairs that has continued for five years and a current medical condition that entails severe pain and
the expectation of extended surgeries. In addition, the Debtor offered proof of his present inability
to find work and the reluctance of employers to consider him for even part-time work because of his
medical history. Even if his medical condition improves, his medical history is fixed. His medical
history, which includes Hodgkins lymphoma, avascular necrosis, chemotherapy, multiple surgeries,
and severe pain, is itself an additional circumstance indicating that the Debtor’s inability to pay his
student loans is likely to persist. Further, during the pendency of his Chapter 7 case, the Debtor has
incurred substantial additional medical debt, which he has been unable to pay. This additional debt
is another circumstance making it likely that his current inability to pay his student loans is likely
to persist. By focusing solely on the lack of expert medical testimony concerning the prognosis for
the Debtor’s current medical condition, ECMC overlooked other substantial evidence in the record
indicating that the current state of affairs is likely to persist for a significant portion of the repayment
period. This is what is required by the second prong of the Brunner test, not a medical prognosis
(though expert medical proof of the expected course of a debtor’s medical treatment and recovery
would also be a relevant additional circumstance). We agree with the bankruptcy court that a
requirement of corroborating evidence “when Plaintiff is unable to afford expert testimony or
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documentation imposes an unnecessary and undue burden on Plaintiff in establishing his burden of
proof,” if corroborating evidence is understood to be limited to expert medical testimony. J. A.,
p. 162-63. See Brightful v. Pa. Higher Educ. Assistance Agency (In re Brightful), 267 F.3d 324, 330
(3rd Cir. 2001) (The bankruptcy court’s findings regarding a debtor’s physical condition do not
require expert testimony).
The Debtor here has provided corroborating evidence in the form of documentation
confirming his past illness, his testimony concerning past events, and in his physical condition and
demeanor. The Debtor has testified as to how his physical condition affects his ability to be
employed. Mosley v. Gen. Rev. Corp. (In re Mosley), 330 B. R. 832, 846 (Bankr. N.D. Ga . 2005).
None of the circumstances that will impede the Debtor’s ability to repay his student loans in the
future is within his control. In short, the record as a whole provides a “certainty of hopelessness”
that this Debtor will be able to repay his student loan obligation in the future. Tirch, 409 F.3d at
682. The evidence provided by the Debtor was sufficient, in this case, to establish the second prong
of the Brunner test.
The third prong of the Brunner test requires proof that the Debtor has made good faith efforts
to repay his student loans. The Debtor has made no payments toward his student loans, but none
have come due as the result of four deferments given on the basis of economic hardship. ECMC
takes the position that the Debtor cannot prove that he has made good faith efforts to repay his
student loans unless he agrees to participate in the ICRP. Adoption of ECMC’s position would
effectively eliminate the discharge of student loans for undue hardship from the Bankruptcy Code.
The Panel does not believe that this is the result intended by Congress. The Debtor explained that
he had considered the ICRP, that he had used a calculator provided on the internet to determine the
likely outcome if he participated in the program, that he feared he would owe substantially more at
the end of the repayment period than he owes today, and that he feared an adverse tax consequence
in that event. ECMC focuses solely on the likelihood that the Debtor would actually suffer an
adverse tax consequence in the event his circumstances do not dramatically improve, and fails to
take account of the additional worry and anxiety that the Debtor is likely to suffer if he is compelled
to watch his debt steadily increase knowing that he does not have the ability to repay it for reasons
beyond his control. Where there is no reasonable likelihood that the Debtor will ever be able to
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repay his student loans, the ICRP fails to provide a reasonable alternative to a discharge for undue
hardship.
The Debtor in this case has reasonable expenses, yet continues to accrue debt for medical
care. He has made efforts to increase his income within his ability. He has cooperated in providing
information to his student loan creditors on an annual basis to obtain deferments. He has never had
the ability to repay his student loans as evidenced by the deferments granted to him as the result of
economic hardship. His condition is likely to persist for a significant portion of the repayment
period for his student loans through no fault of his own. Utilization of the ICRP would likely result
in a substantial increase in his student loan debts over the repayment period. The Debtor has amply
demonstrated his good faith. The third prong of the Brunner test is satisfied.
CONCLUSION
For the foregoing reasons, the decision of the Bankruptcy Court is AFFIRMED.
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